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Can faded newspaper brands survive in a cut-price world?

Traditional media companies everywhere are in turmoil. Most are caught somewhere between maximising (as best they can) profits from declining media ‘channels’ – and investing in businesses that just might become the next big thing. Few are actually in denial about the darkening outlook for their legacy businesses, although their somewhat rosy views of the timescales of decline amount almost to the same thing.

‘Conflicted’ revenue streams

We can characterise legacy media businesses in a number of ways, of course. But it is their joint dependence on what can be conflicting revenue streams (readers and advertisers) that creates insurmountable challenges for these spiralling companies. Profitable dependence on either copy sales or advertising might not actually require a wholesale change in business model, even with the move to digital. But advertisers and readers both chasing each other to the floor certainly does.

It is difficult to escape the conclusion that even the eventual survivors among these legacy businesses will find themselves operating in smaller and less rewarding sectors. That alone should embolden them now to: reduce operating costs and reinvent themselves for smaller but more sustainable core audiences; invest in new stand-alone, sometimes competitor digital operations; and diversify to benefit from different tides in some growth markets.

Here are some predictions about what is coming to newspapers near you.

The pressing economic problems for daily newspapers in most Western countries are clear enough:

Declining readership

Falling ‘market price’ of news

Declining advertising revenue

In all the markets with mass adoption of internet services, newspapers are being savaged. In the UK, newspaper advertising fell more than 30% in the four years to 2010 and it was broadly similar in Spain, Denmark, Norway, Australia, Poland, Japan and many other countries. Once ultra-high-margin advertising for cars, jobs and homes has been an especially painful loss for newspapers: the switch to online has taken away readers as well as profits.

More ereaders than newspapers

While, I am referring principally to daily newspapers in the UK (home of a host of once so-profitable national papers), similar forces are at work in Australia, the United States and much of Western Europe. Circulations are falling, even when cover prices are pegged or discounted in a bid to slow advertising revenue decline.Every now and then newspapers get a new reality jolt, like the News of the World closure which prompted more than half of its erstwhile readers to give up buying a Sunday newspaper altogether. Don’t even think of a price increase.

These are desperate times for “Fleet Street”, and set to be more so. The rapid worldwide adoption of smartphones, ereaders and tablets is pouring petrol on the flames. Within a few years, there will be 2.8bn of these devices carrying news and other content wirelessly – at least 50% more than the total daily readership of the world’s newspapers. And, for all the experimentation and promotional puff, no major news organisation has yet come up with a viable business model for its product on iPad or Kindle: it is all still loss-leading – and often dependant on the resources of hard copy newspapers that cannot really afford to be there either.

But it doesn’t matter whether you are talking about existing hard copy newspapers or the future when these news services will be almost exclusively digital in one form or another. There will be less revenue, much less profit; and the life cycle of products and services, however innovative, might be mercilessly short. But it is even worse than that.

Content takes over from brands

It has taken the UK phone hacking scandals to highlight the extent to which newspapers in general – and not just the guilty tabloids – have lost credibility over a long period of time. The fact is that newspapers have long traded on bias and clearly-expressed views (unlike the highly-regulated, if sketchier output of TV). The traditional newspaper brand of opinionated journalism is becoming markedly less popular in many countries, at a time when the media brand itself is becoming less important than the selected content – and the appetite for news is anyway getting increasingly selective.

Why else would such large proportions of the audiences for some major newspaper web sites be coming from search engines? Witness the Daily Mail Online which is currently the world’s most popular newspaper web site, courtesy of a slavish use of live web analytics – and readers from Google et al. If Britney is trending right now, you will find the Mail Online going big on Britney. Audiences can be relied on to find the coverage whether or not they know or care about the Mail itself. Post-internet audiences are increasingly choosy about what they want to read but agnostic about the source.

This is a horrible situation for the traditional earnings of newspapers who are used to believing in the ultimate value of their historic brands. It also explains why online aggregators like Huffington Post, Zite, Hitpad, Flipbook and the UK’s NewsNow can become stronger and stronger. And it is why newspaper groups have to create new brands and business models if they are to compete in the news business of the future where the distinctions between original sources, aggregators and search engines will matter little to the reader.

New opportunities for some

The bright spots on the horizon of the traditional news providers seem rather faint compared with a 20th “newspaper century” of untold prosperity and power. Free newspapers (feeding an appetite for bite-sized reading) seem set to grow steadily, slicing up the advertising revenues and readership of their paid-for predecessors. And who would bet against Tesco, Walmart, Macey’s – and come to that Amazon – improving the stickiness and profits of their transactional web sites with, say, a daily online diet of news, TV listings, horoscopes, competitions – and shopping offers. A perfect partnership for a tabloid newspaper publisher and its audience. But it would require only a fraction of the hundreds of journalists and support staff traditional newspapers employ.

And this is the point. It is not just the ‘channel’ that has changed in the print-to-digital race. It is the whole economic model based on the changed requirements of spoiled-for-choice readers and advertisers. Almost everything has changed. And now, to the traditional list of newspaper woes, you can add the fading value of the brands on which these once great businesses were built. That in itself is a measure of how fundamental is the change these companies have to undergo in order to have any future at all in the media sector they once commanded.

That is why, before it is too late, daily newspapers should use their considerable promotional power – and cash – to build strong new businesses and not just to prop up dying ones. Those new businesses must inevitably include the kind of ecommerce operations now being trialled successfully by the Daily Telegraph and the Daily Mail, where online sales can be juiced up by editorial content. Newspapers might have lost a slice of the media market but they can bite back some of it from retailing. If they are smart.

That, of course, is the catch. Newspaper groups have to get real and start to reduce capacity, for example in a market where most UK national dailies are unprofitable. Long-overdue signs of serious intent would be some mergers, closures and slim-downs, perhaps including the following changes:

The Times and Sunday Times to become a one-staff, seven day newspaper

Merger of the Sunday Mirror and Sunday People

Merger of The Guardian and The Observer

Those logical, market-led decisions may be meshed with emotion, pension fund deficits, and corporate pride, but they must come. Most publishers realise that continuing to support ailing newspapers is an expensive business that further erodes advertising revenue and defers the move to some kind of reduced (but longer-term) profitability for the whole market. It is assumed that News Corp will divest itself of the troublesome and (in total) marginally profitable UK newspapers on which the whole Murdoch empire was built, either with Rupert’s support – or after him. But the arrival of a new, free spending football club-type mogul could make matters even worse for the whole market. Could Abu Dhabi do to/ for The Times what it has done at league-topping, money-no-object Manchester City?

Some very bright spots…

There will, of course, be winners; and the easiest to call is the quaintly-named Daily Mail & General Trust. DMGT is still saddled with its Northcliffe regional newspaper group for which they lost a poker game with a would-be buyer who risked being wildly generous. The business will soon be back on the market for 10% of the last asking price. That’s how things are for UK regional newspapers, where total property advertising has fallen by more than 50% in five years. But the Mail national newspapers are relatively strong, they are innovative online operators, publish the free Metro dailies in the UK, and own a growing business media group, including the gilded Euromoney. DMGT’s longtime ability to manage an international portfolio of separate and sometimes competing media businesses looks like a winning skill in the battles to come.

In some ways, of course, it seems appropriate enough that DMGT, whose founder Lord Northcliffe created the world’s first popular newspaper at the beginning of the 20th century, should be in pole position 100 years later. But there’s a long way to go and the company is, no less than any other newspaper group, still at the mercy of falling support from advertisers and readers. The Daily Telegraph – with its strong tradition of reader offers, some 300,000 posted subscriptions (a rare luxury for a newspaper), and owners steeped in mail order shopping – is also one to watch.

Perhaps, it will be the Mail which follows the example of Norway’s much-admired Schibsted group and casts acquisitive eyes towards the still-growing media countries where internet services have not yet become mass market and where newspaper prospects are, therefore, radically different – at least for now. For example, the Indian newspaper market – the world’s largest by circulation – is positively booming, with advertising expenditure which increased by 70% percent between 2006 and 2010; and circulation also was up by 41% percent. There is dizzy newspaper circulation growth too in Indonesia (18%), Croatia (39%), Bulgaria(67%), Mexico (24%), Ecuador(51%) and Egypt (28%) over 2006-2010. Many of these would be fertile markets for companies which know all about harvesting newspaper revenues and may, soon enough, have got to grips with what comes next.

Of course, the UK (and other) newspaper groups might not find it easy to ‘participate’ in those foreign markets. There are tough choices. But what’s new about that, in what is the newspaper industry’s last century?